Even hard-line supporters of the free market, such as myself, accept that the state must perform certain essential functions and I believe one of these functions is to help those who cannot help themselves. There are helpless people in every society - the destitute, the disabled, the aged and the orphaned young - and the state must be the provider of last resort for them. In South Africa today there are 15 million people receiving welfare grants, which cost about R100 billion a year. This is 15% of the budget or 3.8% of the GDP.
Since there are only about 6 million registered tax-payers in South Africa, it is disturbing that two and a half times that number depend on state welfare. Obviously we want more tax-payers, which means more people in formal employment, and fewer people on grants. The individual grants are small. For example, the old age pension is R1,080 a month and the child support grant R250 a month. However, these small amounts of money make a critical difference to the well being of the recipients. They have a powerful effect in reducing poverty.
There are a range of grants, including ones for old age, disability and child support. It should be noted there is none for an able bodied adult with no income. If you are one of the unemployed millions in South Africa today, you will get no help from the state.
A radical idea has been proposed by both socialists and capitalists. This is that there should be a universal grant, given unconditionally to anyone who applies for it. It comes under various names. In South Africa it is called the "Basic Income Grant" (BIG). Milton Friedman, a champion of capitalism and one of my heroes, promoted the idea of "Negative Income Tax", which is almost the same thing.
The DA is in favour of BIG. Their proposal is that it should be administered by South African Revenue Services (SARS), the most efficient arm of the Government. Any adult South Africa citizen could approach SARS for BIG and it would be automatically granted, without any means tests, without any questions at all. However, it would be simultaneously registered by SARS against the recipient as a much larger taxable income.
Here's an example (my figures not the DA's). Suppose BIG is R300 a month, or R3,600 a year. If you apply for it, you will get it but it will be registered against you as a taxable income of R59,750 (the tax threshold for 2011/12). So Nicky Oppenheimer could apply for it and get R3,600 a year but he would be taxed R23,900 on it (at the top tax rate of 40%). It would only benefit those with no other income at all.
With Milton Friedman's negative income tax, if you earned above a certain level of income, you would pay the state in taxes; if you earned below this level, the state would pay you.
BIG would not increase state expenditure. It would replace other grants rather than add to them. At present, grants are administered through the South African Social Securities Agency (SASSA) and there is considerable bureaucracy, including means tests, and opportunities for corruption. The bureaucracy is expensive and inefficient. BIG would eliminate the means tests and most of the bureaucracy and corruption. The cost of administering it would be low. It would be simple and efficient.
One of the consequences of BIG is that it would be available not only to those who cannot help themselves but to those who don't want to help themselves. Drunken layabouts could get BIG. This is why such a scheme has sometimes been called a "vagabonds' grant". This raises a deep ethical question about the nature of our society and individual responsibilities within it. Should everyone who can work for a living be obliged to do so? Or should people who, for a variety of reasons, choose not to work for a living be supported by the labour of those who do work? My unhesitating answers to these questions are "No" and "Yes".
Most people like working or, to be more accurate, dislike not working. In my working career of over 40 years, I have seen it over and over again. At a brick making factory I saw a man slightly injured so that he could not work but was able to enjoy three months of leisure paid for by the company as he recovered; he was utterly miserable and couldn't wait to get back to his boring job. Many men, wealthy from a lifetime of work, are so dejected in retirement that their health suffers and they die soon after. But there is a small and important minority who don't want to work for a living.
Charles Darwin did not earn any money until late in his life. He worked extremely hard at his science but it brought him no money. He relied on family wealth for his sustenance. Without it he would not have been able to give the world one of its most profound scientific discoveries. How many budding Darwins are there who do not have rich families and so are obliged to forsake their pursuit of science for a job as a clerk in the post office? Vincent Van Gogh sold one painting in his life, and would not have been able to paint at all unless he had been able to scrounge money from family and friends. BIG would have helped each of them to follow their genius.
There will be very few Darwins and Van Goghs among the BIG recipients but there might be some, and their contribution to society is priceless. There will be a much larger number of malingerers and malcontents. These people, who do not like working, do more harm than good in the workplace, grumbling, agitating and demoralising fellow workers. Much better that they spend their time sitting on the beach drinking red wine or composing angry poetry - which BIG would allow them to do.
Surely people working hard would resent the fact that they were supporting other people, including the bone idle, who were not working? The simple answer is that they would be free to join the idle on BIG any time they liked. But they wouldn't like, and the reason is that BIG would be much too small to bring them the things they want, such as houses, cars, smart clothes and so on.
If you took all the money now spent on grants and divided it by the number of people now receiving them, each person would receive R6,667 a year or R556 a month. This would be their grant if BIG replaced all existing grants. But BIG would greatly increase the number of recipients, especially by including the unemployed, and so each BIG recipient would have to receive considerable less than this if total expenditure on welfare were not to be increased.
BIG would have to be gradually phased in to replace existing grants. The biggest problem would be the old age pension, which is now R1,080 a month, much bigger than BIG. Old age pensions now account for R35 billion of the R100 billion spent on grants. One option would be to leave pensions as they are and fund BIG out of the remaining R65 billion.
A more radical option would be to keep existing pensioners on the existing pensions until death but replace pensions with BIG for all new pensioners. This would mean a large reduction for them. However, pensioners are now supporting family members, including unemployed adult children and grandchildren, and if these members were receiving BIG themselves the financial burden on the pensioners would be relieved.
There is a widespread belief that young women, including teenagers and schoolgirls, deliberately get pregnant in order to receive the child support grant. I don't know if this is true but, if it is, BIG would remove any incentive for them to do so. There would be no child support grant; there would only be BIG. The child support grant now has the largest number of recipients, 10.4 million, and replacing it with BIG would result in large savings from reduced bureaucracy.
Looming darkly over the South African economy, and indeed over the future of South Africa, is our catastrophic unemployment. Including those who have given up looking for work, it probably stands at 40%. A fundamental reason for this is our dreadful, immoral labour laws. These laws make labour so costly and make firing bad workers so difficult and expensive that employers are very reluctant to employ. These laws deny people a fundamental human right: the right to work.
If Mr A offers Mr B a job he would be delighted to accept, he is not allowed to accept it unless it has the approval of Mr C from the Labour Department. Mr C's does not approve and insists on conditions so onerous that Mr A cannot comply. Mr B goes jobless. The labour laws shut millions of South Africans out of the economy and condemn them to a lifetime of poverty. They are the main reason why South Africa has about the worst inequality on Earth. BIG offers, perhaps, some relief.
The unemployed now get no support from the state. If BIG were in place, they would all qualify for it. With this safety net, the consequences of dismissal would be lessened, and this could be used as an argument for changing the labour laws so as to make dismissal easier. The easier it is to fire, the more employers would hire, and so more people would be able to enter the economy, reducing the need for grants.
A Basic Income Grant for everyone, replacing existing grants, could bring about a considerable transformation for the better of South African society.
1. Stats on present grants from SA Survey 2009/2010. SA Institute of Race Relations.
2. Proportions of budget and GDP spent on grants from 2011 Budget Review.
3. The brickyard was Bovingdon Brickworks in Buckinghamshire, England. I was working as a labourer there. The man in question, who had been there for about 15 years, doing exactly the same very boring job, handling moulds of bricks fed by a clay extrusion machine, made a wrong move and got his thumb crushed in the machine. He was laid off for three months. He had all the leisure time to do anything he wanted. He came to the factory every day to watch the others work and to chat to them.
This article was published with the assistance of the Friedrich-Naumann-Stiftung für die Freiheit (FNF). The views presented in the article are those of the author and do not necessarily represent the views of FNF.
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